CHAPTER 9: MANAGING BUSINESS FINANCES Introduction to Business

Accounting in Business  Accounting: system used to record, classify, summarize and interpret the financial data of a business  Used to keeps tabs on the flow of money in and out of a business  Transaction: any activity that has an effect on the financial situation of the business  Accounts are used to track the activity

Accounting in Business  Asset: property or any item of value OWNED by a business  Liability: any amount ($) a business OWES  Owner’s Equity: Owner’s claim on the business; assets-liabilities  Equation: Assets = Liabilities + Owner’s Equity  EX: 139

Financial Statements  To know where a company stands financially, companies make financial statements for a period of time= fiscal year  2 Main Types  Income Statement  Balance Sheet  Companies use the information to make decisions

Income Statement  Reports Net Income or Net Loss for the fiscal period  Net Income = Total Revenue > Total Expenses  Net Loss = Total Revenue < Total Expenses

Balance Sheet  Reports total in assets, liability & owner’s equity on a specific date  Same as Equation  Assets = Liabilities + Owner’s Equity

The Role of a Financial Manger  3 Main Responsibilities  Managing company funds & meet financial obligations  Obtaining funds to meet financial obligations  Creating financial plans, setting objectives, & evaluating progress

Meeting Financial Obligations  Primary Responsibility: Business meet financial obligations and payments  Figure 9-3 on page 145  Needs fund for  Operating Expenses  Expansion  Additional income  Investments Risk: uncertainty of gaining or losing money in an investment Return: amount of gain or loss an investment yields over a specified period.

Finding Sources of Funding  Business Revenue = sale of goods & services  Profits = earnings left over after all expenses & taxes  Borrow money  Banks, insurance companies, & investment companies  Selling stocks  Look for new investors  Owners contribute money

Financial Planning  Create long-range business plans  Financial/business plan=document that specifies what funds are needed by a business and for what period Income and outgoing funds Outlines appropriate use Sets objectives & best path to accomplish them Are objectives being met  Use Forecast: an estimate of the future business climate  Reflects changes in business conditions in the community, nation, & international economy  Evaluates the impact of changes on business

Who Works in Accounting and Finance?  Characteristics  Mathematics Skills  Aptitude for details  Ability to work with others  Computer skill  Ability to analyze